Gas stations aren't pumped about Mastercard's magstripe phaseout

Mastercard is the first U.S. card network to set a date to permanently dump magnetic stripes — whether or not merchants are ready.

Citing a decline in magstripe payments as EMV-chip payments take hold, Mastercard will not require mag stripes for new cards starting in 2024 in most of its markets, and by 2033 no Mastercard credit or debit cards will have magnetic stripes. Mastercard says this 11-year transition is a long enough runway for EMV laggards to upgrade their point of sale terminals, but it may still be too soon for merchant categories such as gas stations.

"They're not giving us a lot of time," said Linda Toth, managing director at Conexxus, an Alexandria, Virginia-based association that publishes standards and guidance for gas merchants and convenience stores. The Mastercard move is like a "mandate," according to Toth, adding that makes it different from past policies that simply shifted liability for fraud based on EMV status.

The liability shift enabled merchants to decide for themselves whether the upgrade to EMV was worth it. EMV, known in other countries as chip-and-PIN, encrypts card data so that it becomes harder for scammers to compromise the point of sale or create cloned cards. The upgrade could be pricey — especially for gas stations, which may have to rip pumps out of the asphalt to make the necessary changes — and some merchants decided that they would rather accept the fraud liability shift than pay for new hardware.

Those merchants could still accept magstripe card payments. But under Mastercard's new timeline, "if you haven't migrated to EMV compliance under this new announcement, you won't be able to accept cards," Toth said.

While gas station chains are experimenting with mobile and voice-activated payments, credit cards are still the dominant form of payment at nearly all stations in the U.S., which has about 115,000 gas stations, according to 24/7 Wall Street.

The card networks have previously made concessions to the fuel industry, ultimately moving that market's liability shift to April 2021 six years past the deadline for other merchant categories. "Our industry is very complex and we have a number of merchants both large and small that haven't converted yet," Toth said.

In the early days of the EMV migration, merchants pushed back against the standards, contending the upgrades weren't worth the cost. In some cases, large numbers of merchants also weren't aware of the existence of chip cards. That's no longer the case, says Toth, adding supply chain challenges and lingering impacts of the pandemic have made it harder to implement upgrades.

"It's not a matter of not wanting to be compliant," Toth said. "There are still equipment shortages."

A Connexus survey released shortly before the April liability shift for gas stations found 31% of gas stations had not migrated to chip cards. About half of gas stations in the U.S. will be EMV compliant by the end of 2021, according to ACI Worldwide.

"There will be challenges as all terminals will be required to accept chip transactions," said John Drechny, CEO of the Bentonville, Arkansas-based retail trade association Merchant Advisory Group, adding self-service kiosks with embedded magstripe support may also be challenged.

Drechny said MAG's goal in mag stripe retirement is to ensure parties that are affected "have a voice" in implementation. He added Mastercard's timeframes for new cards and all cards "seems reasonable" for full merchant conversion.

Shell, which is 86% migrated to EMV in the U.S., did not answer questions about non-converted point of sale terminals.

"We continue to make steady progress every day and are pleased to deliver an enhanced customer experience at such a large percentage of Shell-branded sites," said Warren Robinson, a spokesperson for Shell.com, in an email. Shell has about 14,000 locations in the U.S. and covers about 10% of the gas station convenience store traffic, according to 24/7 Wall Street.

Gilbarco Veeder-Root, which manufactures EMV-compliant gas terminals, reports that a majority of retail fueling sites in the U.S., or about 66%, have adopted EMV technology.

Mastercard reports chip cards have become popular among Americans, with more than half preferring to use a chip card at a terminal over all other payment methods, according to research the card network conducted with the Phoenix Consumer Monitor.

Only 11% preferred two swipe a magnetic stripe, with that percentage dropping to 9% for cardholders that have used contactless payments. Phoenix also found 81% of American cardholders would be comfortable with a card that does not have magstripe and 92% would increase or keep using cards at the same rate if the stripe was no longer there. Mastercard did not answer questions about merchants that may not be upgraded to EMV by either date. Visa, American Express and Discover did not return requests for comment, though the card brands have traditionally aligned their EMV migration schedules.

There is ample benefit in discontinuing magstripe cards, particularly in security, Drechny said.

"Too many times in the past merchants have been victimized by organized hackers interested in gaining unauthorized access to card credentials easily accessible through static data within the magstripe," Drechny said. "With the move to chip, the addition of a cryptogram makes it more difficult to replicate the data. Of course, one could argue the addition of a PIN would have worked as well."